The End of Capitalism As We Knew It
By Jeff Fischer
We previously wrote about planned obsolescence, but now things have gone even further. Products aren’t just being designed to be obsoleted, but they are being intentionally engineered by manufacturers to self-destruct and take other parts with them.
America has been at a juncture in its evolution of Capitalism for some time. We’ve agreed to take a greedy detour that deviates from our roots of greatness and pride. Where this path will take us, we’re not sure, but we’re about to explore it.
Business by the numbers
Understandably, it’s a dynamic and challenging environment in which businesses now exist. Being a business owner today there are endless amounts of regulatory bodies with which to comply, filings to make and taxes to pay. That’s not even including creating a competitive product or service, bringing your products and services to market in a meaningful way and trying to create – and keep – an exceptional customer experience. Let’s face it, business ain’t easy.
Every business has a polarity to its financials: expenses and revenue. Every business also has a polarity to its revenue: new customers and existing customers.
If you want to grow a business’s profits, there are a limited number of ways to do it. Many are reputable and add customer value, but some are disreputable and have the potential of causing customers negative experiences and possibly injury or even death.
- Reduce expenses
- Increase new customers (revenue)
- Increase existing customer revenue
Most businesses want -really, need – to create exceptional growth. That’s why they’re in business and for publicly traded businesses, that’s the expectation of their shareholders.
Expense reduction is a limited short term limited gain, so businesses rightfully focus on revenue generation. If you’re a small business you have one sole mission – gain new customers. But, for large businesses with existing product lines and established market share, what are their options?
They either need to get very good at marketing and create innovative ways of differentiating themselves from their competitors with their existing product line or they need to bring entirely new products or product lines to market in an effort to gain more new customers. This often takes a long time (R&D) and comes at a great expense.
The most obvious and accessible option is to create more revenue with their existing, established, customer base.
To add value or create negative value
Designing your products to have planned obsolescence can be challenging given the fact that businesses have to remain competitive in their customer’s eyes to maintain market share. So, businesses have innovated new ways of obsoleting.
I’ll use my recent experience with brakes on a Hyundai Elantra as a prime example of business’ new and improved obsolescence strategy. Replacing the brakes on your car is one of the easiest, most economical and cost-saving updates you can do on your vehicle. So, I have a great deal of experience with brakes.
First, a little brake anatomy and physiology.
Image credit: How to Replace Disc Brake Pads
As you can see in the diagram, the pressurized brake fluid in the blue line coming into the piston expands the piston and causes the brake pads to apply friction to the brake rotor.
Image credit: How to Replace Disc Brake Pads
Most people know that if they drive on their brakes very long after they start hearing a squealing sound that they’ll be ruining their brake rotors. So you can’t drive very long after you hear that early warning or you’ll be looking at a much larger, more expensive project of not just replacing your pads, but the rotors as well.
But, what if Hyundai could design the brakes such that they could ensure that your rotors had to be replaced, not just your pads? If this were true, rather than offering their customers more value, they’re “offering” customers negative value, having them pay for replacing something unnecessarily.
What if Hyundai could make a very simple design change that would ensure that customers not only had to replace their pads but their rotors as well? If the vehicle is newer, then they’re almost ensured that the customer will bring it to the dealership to have the brakes done. Brakes aren’t something covered in a warranty and if the customer was deemed at fault, then neither would the rotors. This could be a windfall for Hyundai!
So, what is the early warning system people use to ensure that they don’t have to replace the majority of their brake system?
Here’s a recent picture from a 2013 Hyundai Elantra.
|Factory Brake Pads||After-Market Brake Pads|
That little shim of metal that extends beyond the hard metal backing of the brake pad is what makes the audible sound as the pad wears down to the last remaining protection from putting metal on metal.
The brake pad falling off of the backing plate wouldn’t have crossed my mind as odd, but when I was told that the front brake rotors had to be replaced under 60k miles, that’s what made me think twice.
I realized that the warning shim that makes noise had been reduced by ½ in size. It was made so small that the brake pad had failed on one side before the shim was even making any noise.
Rather than the normal squeal from the shim that you get, from a shim that’s the correct length such as the right photo, you just go immediately to metal on metal grinding sound and instantly start to destroy your rotors.
Money, Money, Money
Right about now, if you’re a Hyundai Executive, you should be seeing dollars signs in your eyes!
We’ve just created an innovative new way to Capitalize on all of our existing customer base in a whole new way. Existing, unsuspecting, trusting, customers who have been served well by Hyundai products in the past will buy a brand new car and be forced to replace their rotors on their very first brake pad replacement.
Not only does this offer the business revenue for the labor and materials for replacing pads, but a job that is 2-3 larger.
Here’s a breakdown from autoservicecosts.com for brake jobs:
|Brake Pads||$50 – $150||$100||$150 – $250|
|Rotors||$200 – $400||$150||$350 – $550|
|Calipers||$50 – $100||$100||$150 – $200|
Hyundai has successfully increased its brake pad replacement revenue from $250 to $800…an increase in revenue of 220%.
This is a clear financial win for Hyundai in the short term, but won’t this have side effects? Similar to the first law of thermodynamics, to the extent their shenanigans are known by their customers, their business is likely to receive equal and opposite backlash from their customers.
The Customer is Always Right
The phrase “The customer is always right” is the hallmark of American business and became representative of Capitalism ideals around the world. This simple phrase had the ability to make or break businesses of a bygone era.
Done right, a business would thrive off of their customer relationships. Done wrong, it could devastate a business overnight. Arguably, this phrase Made America Great.
Businesses took a strong stance that they were there to serve customers. The more the business provided value for the customer, the more businesses yielded the benefit of customer loyalty and goodwill for the business.
The Rise of Oppositional Capitalism
Like me, can you list a half dozen times in the last 12 months were you’ve been told you’re “wrong” as a customer?
Waited on the phone for 45 minutes on the phone only to be transferred 3 times? Tried to buy a countertop from Ikea only to wait for 1.5 hours to retrieve it from warehouse pickup? Have you been to the hospital and misguided about the real price of the service only to find out it costs 2-3x more than originally stated or labeled?
If you’ve experienced a scenario similar to this, then you’ve experienced Oppositional Capitalism. Businesses are now taking a clear stance that the customer is wrong. Businesses seem to only be willing to value the customer to the extent necessary. The bigger a business gets and the more cost-competitive a business is, in the case of Ikea, the less they seem to care about an individual experience.
Tell us your Oppositional Capitalism story in the comments.
The Abundance Capitalism Opportunity
In order to find our path out of the issues we’ve created, we must able to discern one type of Capitalism from another. For us to make those distinctions, we need adequate words we can use that will allow us to begin to articulate and reason about the problem. And so enters Abundance Capitalism.
Stephen Covey’s 7 Habits of Highly Effective People talks about win-win mentality vs. win-lose mentality:
When one side benefits more than the other, that’s a win-lose situation. To the winner, it might look like success for a while, but in the long run, it breeds resentment and distrust.
Stephen believes that when one side disproportionately benefits more than the other, that this results in win-lose. In the end, once customers become aware of a pattern of this win-lose behavior, they often are willing to purchase from another, more trustworthy and mutually beneficial company to purchase from. In this way, win-lose quickly becomes lose-lose because the customer loses just prior to the company losing the customer.
Businesses that want to build and maintain a customer base need to create win-win product and service offerings. These are the concepts buried in the roots of what Capitalism and historically thereby, America, great. In fact, it makes businesses, Capitalism, and even individuals great.
What do you think?
Do you think businesses care about their customers as much as they used to? Do you find yourself spending more on repairing and replacing items now than you did years ago? Please share your thoughts in the comments.
Jeff Fischer is a Software Engineer and Architect and Innovator who has a passion for philosophy, economics, healthy eating for the prevention and reversal of disease, and lifting weights. If you’d like to read more of Jeff’s writing, it can be found at his blog: Software Business Boot Camp